Hondras is a large equipment supplier with retail stores throughout Tool land.Many of the products it sells are bought in from outide suppliers but some are currently manufactured by Hondras's own manufacturing division Nail.

The prices$($a transfer price$)$ that Nail charges to the retail stores are set by head office and have been the subject of discussion.The current policy is for nail to calculate the total variable cost of production and delivery and add $30\%$ for profit.Tails argues that all costs should be taken into consideration,offering to reduce the mark$-$up on costs to $10\%$ in this case.The retail stores are unhappy with the current pricing policy arguing that it results in prices that are often higher than comparable products available on the market.

Nail has provided the following information to enble a price comparison to be made of the two possible pricing policies for one of its products.

Garden shears have $0\mathrm{.}4$ kg of high quality steel in the final product.The maanufacturing process loses $5\%$ of all steel put in$.$Steel costs $$4000$ per toone$(1$ tonne$=1000$kg$)$

Other materials: Other materials are bought in and have a list price of $$3$ per kg although Hondras secures a $10\%$ volume discount on all purchases.The shears require $0\mathrm{.}1$kg of thise materials.

The labour time to produce shears is $0\mathrm{.}25$ hours per unit and labour costs $$10$ per hour.

Variable overheads are absorbed at the rate of $150\%$ of labour rates and fixed overheads are $80\%$ of the variable overheads.

Delivery is made by an outsourced distributor tat charges Tails $$0\mathrm{.}5$ per garden shear for delivery.

$($a$)$ Calculate the prices that Nail would charge for the garden shears under the existing policy of variable cost plu $30\%$

$($b$)$ Calculate the increase or decrease in price if the pricing policy swiched to total cost plus $10\%$

$($c$)$ Discuss whether or not including fixed costs in a transfer price is a sensible policy.

$($d$)$ Discuss whether the retail stores should be allowed to buy in from outside suppliers if the prices are cheaper than those charged by Nail